Company issues a four-year, 7.5% fixed-rate interest only, nonpre-payable $1,000,000 note payable on December 31, 2000. It decides to change the interest rate from a fixed rate to variable rate and enters into a swap agreement with M&S Corp. The swap agreement specifies that Sarazan will receive a fixed rate at 7.5% and pay variable with settlement dates that match the interest payments on the debt. Assume that interest rates have declined during 2001 and that Sarazan received $13,000 as an adjustment to Interest expense for the settlement at December 31, 2001. The loss related to the debt (due to interest rate changes) was $48,000. The value of the swap contract increased $48,000. a. Prepare the journal entry to record the payment of interest expense on December 31, 2001. b. Prepare the journal entry to record the receipt of the swap settlement on December 31, 2001. c. Prepare the journal entry to record the change in the fair value of the swap contract on December 31, 2001. d. Prepare the journal entry to record the change in the fair value of the debt on December 31, 2001.
E26-4 (Fair Value Hedge) Company issues a four-year, 7.5% fixed-rate interest only, nonpre-payable $1,000,000 note payable on December 31, 2000. It decides to change the interest rate from a fixed rate to variable rate and enters into a swap agreement with M&S Corp. The swap agreement specifies that Sarazan will receive a fixed rate at 7.5% and pay variable with settlement dates that match the interest payments on the debt. Assume that interest rates have declined during 2001 and that Sarazan received $13,000 as an adjustment to Interest expense for the settlement at December 31, 2001. The loss related to the debt (due to interest rate changes) was $48,000. The value of the swap contract increased $48,000.
a. Prepare the
b. Prepare the journal entry to record the receipt of the swap settlement on December 31, 2001.
c. Prepare the journal entry to record the change in the fair value of the swap contract on December 31, 2001.
d. Prepare the journal entry to record the change in the fair value of the debt on December 31, 2001.
E26-5 (Fair Value Hedge) Using the same information from E26-4. Prepare the entries on the books of M&S Corp. The $1,000,000 nonprepayable note is classified as an available-for-sale security by M&S Corp.
a. Prepare the journal entry to record the receipt of Interest on December 31, 2001.
b. Prepare the journal entry to record the payment of swap settlement on December 31, 2001.
c. Prepare the journal entry to record the change in the fair value of the swap contract on December 31, 2001.
d. Prepare the journal entry to record the change in the fair value of the available-for-sale debt security on December 31, 2001.
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